Tax on rental income

[pato]

According to a recent article in the AFPOP magazine
'If you let out furnished accommodation to tourists on a short term basis.......this activity receives special tax treatment under the "Simplified Regime"......you are only taxable on 15% of your invoiced income and the other 85% is automatically excluded to cover business overheads....'

This should make renting out much more attractive.

Does this affect paying tax in the UK, and could I opt to pay my tax in Portugal rather than my exorbitant demands in the UK?

[sam]

According to a recent article in the AFPOP magazine
'If you let out furnished accommodation to tourists on a short term basis.......this activity receives special tax treatment under the "Simplified Regime"......you are only taxable on 15% of your invoiced income and the other 85% is automatically excluded to cover business overheads....'

This should make renting out much more attractive.

I thought that if you were tax resident you only paid 15% OF total income on the simplified regime.

[steve]

Pato knows full well from previous postings that if you are UK tax resident and let a property in Portugal you have to pay tax in both countries according to the respective sets of rules which govern rental income but you can offset against your UK tax any tax paid in Portugal. I don't know much about this 15% scheme but if you are treated as a business the question of IVA could arise and you would need to check whether HMRC accepts that tax based on business activity can be offset against your personal tax in the UK. I don't see why not but you never know.

[biffa]

Its not all good news though! Read the small print!

[Bruce Wallis]

Its not all good news though! Read the small print!

Well you're supposed to be the expert.....explain it to we ignoramus's!!

[biffa]

Bruce, I think there is an article about this on the Finance Section showing both sides of the story. Maisie says hello and is out soon!

[sam]

been searching on line about this. Not found much info. Looks like the government are encouraging people to let property as a business. At first glance this looks good, but this would entail issuing official invoices logged electronically with the Financas, and possible IVA and Social Security payments etc. So not so simple. Trading as business was discussed recently in another topic.

[steve]

I can't see anything about this in the Finance section.

[biffa]

ooo er!

Let me check that one out!

[LICY]

According to a recent article in the AFPOP magazine 'If you let out furnished accommodation to tourists on a short term basis.......this activity receives special tax treatment under the "Simplified Regime"......you are only taxable on 15% of your invoiced income and the other 85% is automatically excluded to cover business overheads....'

This should make renting out much more attractive.

We pay 15% tax plus 6% IVA. You MUST complete proper invoices for each let, including 6% IVA. Each quarter we pay our IVA after deductions of IVA regarding maintenance, utilities, so long as we have bonefide invoices, also the accountants IVA. We can include all repairs, building, architect and so on that would be to improve our villa. We cannot deduct for our maid. At the end of the financial year we then get clobbered for the full tax bill.Not sure yet if the payment less IVA for maintainence etc is deducted from the rental income. We get no allowance for paying a mortgage either. On top of that hubby also has to include this into his Uk tax after costs/ taxes in portugal to make sure we have not earned too much. We can however deduct our mortgage and other bills. It is complicated, but it is important to be above board. I truly hope we can say we make ends meet, otherwise renting out is pointless.

[biffa]

A new law was passed on 29th August which obliges all short term rental income (under 30 day lets) to be reported under the Category B business income category.
This should mean a substantial reduction in tax for those that let but requires an ongoing dialogue between the property owner (or the property agent) and the entity reporting (accountant?).
It means that as the property is rented you need to inform the accountant of the date, amount and period on monthly basis.
It may also be necessary to deal with the social security requirements of registration. It would need to be analysed to see if you meet the conditions to apply for exemption which are one of the following conditions:

• Pensioner;
• Already paying obligatory contributions the social security institution in your own country of residence.

The administration of this is a time consuming job which will be compensated with the mitigation of your tax burden.
The calculation of tax will be on the basis of turnover. The so called “Simplified Tax Regime” will normally apply meaning the tax will be based on a flat fixed amount of profit of 15% of rental income. A flat tax rate of 25% will apply to the 15% profit which will determine a final tax rate of 3.75% of the sales.

[e-richard]

That sounds very interesting Biffa.
Will/can/could/does that apply to rentals in 2014 ?

[biffa]

No - only effective for 2015. It will reduce the owners tax burden (less tax for the state!?) but will require more effort on the property owner to provide details of income etc to the reporting entity.

[e-richard]

[it] will require more effort on the property owner to provide details of income etc to the reporting entity.

That's trivial. I'm already designing the additional report for my Rental Management System.
And you have given me 3 extra months to get it ready

[RichardHenshall]

... but requires an ongoing dialogue between the property owner (or the property agent) and the entity reporting (accountant?). ...

I realise that this may seem a rude question but is there a DIY option or is it compulsory to have an accountant/fiscal rep/reporting entity or can a non-resident be compliant without one?